S&P Global Maintains Bosnia and Herzegovina's Current Credit Rating

(Patria) - S&P Global Ratings has affirmed the long-term and short-term sovereign credit ratings for Bosnia and Herzegovina in local and foreign currency at 'B+/B' with stable outlooks, Reuters reported last night.

The rating agency maintained the country's transfer and convertibility assessment at 'BB' in its statement on Friday.

S&P's stable outlook reflects its view that domestic political tensions, while potentially re-emerging, will not escalate beyond the confrontations observed earlier this year. Political conflicts and policy impasses remain a constant risk due to Bosnia and Herzegovina's complex institutional arrangements.

The ratings remain constrained by the country's extremely complex institutional and governance system, where political volatility often occurs and tends to escalate around elections.

S&P noted a significant escalation of political tensions between the Republika Srpska entity and
several institutions of Bosnia and Herzegovina earlier this year, including repeated secession threats. These tensions have since de-escalated.

Bosnia and Herzegovina's consolidated fiscal position of the state government remains a rating strength. S&P forecasts budget deficits to average below 1% of GDP annually over 2025-2028, with net general government debt stabilizing at 21% of GDP by 2028.

Nearly 60% of the consolidated general government debt is owed to official bilateral and multilateral creditors with long maturities and favorable interest rates.

The country's currency board arrangement with the euro provides an important policy anchor but limits monetary policy flexibility, as the Central Bank of Bosnia and Herzegovina cannot act as a lender of last resort to the financial system.

Economic growth has slowed amid weak demand from Bosnia and Herzegovina's main trading partner – the European Union. S&P expects modest real growth of 2.5% this year with a slight increase from next year, reaching just under 3% on average from 2026-2028.

The agency expects current account deficits to remain low over the next four years, averaging slightly above 3% of GDP, partly due to external borrowing constraints.

S&P could lower the rating if political and institutional risks escalate in ways that threaten the basic functioning of the state or weaken the government's ability to service its debts. On the other hand, the rating could be raised if consensus-based domestic policy-making accelerates structural reforms, particularly those related to European Union accession.

Bosnia and Herzegovina's banking system remains healthy with strong profits and capitalization, primarily deposit-funded.

Domestic loans and deposits grew by almost ten percent in 2024, a trend that has continued into this year, with non-performing loans remaining near historically low levels, just above 3.5%.